The company, which began serious commercialization efforts for its breakthrough DiesoLiFT10 diesel engine fuel additive early last year, reports that over 20 rail operators around the world are either buying, testing or planning field testing of the product.
Its success in the railway industry is a testament to management's strategy to build a top-quality international distribution network that includes such highly-regarded partners as Unipart (http://www.unipart.co.uk) (U.K. and Australia), Nordmann Rassmann (http://www.nordmann-rassmann.com) (Central and Eastern Europe) and Logerail (http://www.logerail.com/) (Africa and the Middle East). These relationships have allowed IFT to leverage its resources and capitalize on the credibility of its partners and their ability to call on a large number of prospective customers in each of their respective markets.
The growth that IFT is now experiencing in the rail industry is built on many years of worldwide independent laboratory and field testing that have consistently demonstrated fuel efficiency improvements of 3% to 6% (on average) and associated cost and environmental benefits resulting from use of the product. No diesel fuel additive now on the rail market can make and support these claims.
IFT recently completed four rounds of testing at mi Technology (www.ltc.ltd.uk), a prominent independent test facility in the U.K. In one test against four competing additives in a B-20 bio-diesel fuel blend, DiesoLiFTTM 10 was the only additive that demonstrated fuel economy improvement as well as recovery of the lost fuel economy that results from the use of bio-diesel fuel.
"We have passed the tipping point of credibility with DiesoLiFTTM 10," said Gary Kirk, IFT's Director of Sales and Marketing. "The marketplace now recognizes that we have a unique technology that truly performs as advertised to improve fuel efficiency in diesel engine powered trains. We expect our worldwide sales to the rail industry from this product to be at a $5 million annual run rate by year-end."The company is working with most of the passenger rail operators in the U.K. One existing customer who at one of its divisions plans to begin field testing in its two other divisions. More than 10 other freight and passenger operators will begin field testing over the next 6 months. There is a high level of field validation activity either in progress or planned in Belgium, Romania, Poland, Czech Republic, Netherlands, France, Spain and Germany.
IFT recently added a new distributor in Africa;one major rail operator will begin testing by year-end.
In the U.S., a new distributor has been added and discussions are underway with two major rail operators to start field testing.
Discussions with operators are well underway in Brazil, the South Pacific and India.
How successful an investment IFUE turns out to be depends on how fast sales build and to what level they grow.The current environment of rising fuel prices should be a positive for the company's cost-saving products.
In our view, incremental profits and profitability could be substantial. For example, I estimate that $10 million a year in revenues should mean some $1.5 million (or more) in pretax income.Higher revenues should yield a widening in gross profit margins on a smaller percentage growth in SG&A.
This operating profit outlook compares to the current $18 million market cap. International Fuel also has a $42 million tax loss carry forward. The weak link is the balance sheet but, in my opinion, a relatively modest capital raise will carry the company until the sales come in.Harris L. Berenholz, CFA
Disclosure: I own IFUE shares and have been retained by the company as an independent consultant
Disclosure: I am long OTCPK:IFUE.